Blogs  / September 8, 2014

4 unlikely lessons from office space trends

by Rebekah Iliff

Part of the beauty of being an entrepreneur is the uncanny ability to roll with the punches, adapt to change, and ultimately solve problems in a creative way. But whether you’re a first-time founder or a seasoned innovator one truth holds constant: markets do not giving a flying you know what about your product roadmap, company valuation, or engineering pedigrees.

Nope. In fact, the irony of a free market is just how little any of this seems to matter in terms of the ultimate success of a company. Dare I bring up examples of over-hyped companies whose IPOs flopped, over-funded companies who (after years and years) still don’t have an actual profit-making enterprise, or behemoth brands with billions of dollars in the bank who can’t seem to innovate their way out of an open box.

The point? As much as we try, it’s often hard to predict which entrepreneurial pursuits will wind up being lucrative, and which ones will take their rightful place in the graveyard of good ideas (or terrible ones) that suffered from bad timing, ill-equipped people, or poor product execution. Between all the plans and strategies and intentions of a business lie the actual and tactical components of what often end up leading to a big win; or on the other side of the coin, an ultimate failure.

Office space trendsLately, as our company prepares for rapid growth, I’ve been thinking about things differently, which basically means more tactically. From hiring to building a culture, what are factors that we need to consider as we prepare for the next phase?

Last week, I met with two gentlemen from CBRE, a global real estate and investment firm, to talk about office space. You know, to manifest our future digs, which will (obviously) include a yoga studio, a full kitchen, vaulted ceilings, and a spiral staircase. Uh-huh, right. What I learned, however, beyond that fact that the aforementioned criteria would likely send us into early bankruptcy, is just how insightful the statistics and data around office space trends are to understanding the current environment for aspiring businesses.

You ready?

From CBRE’s “U.S. Tech-Twenty: Measuring Market Impact” report, here are a few things you may want to noodle on as you build out your empire – which will require plenty of office space:

#1 Tech-Twenty markets and rent growth

San Francisco topped the U.S. Tech-Twenty Office Markets list for the third straight year. Over the past two years, San Francisco’s high-tech job base has grown by 51%, while average asking rents have climbed 35%.

Eight of the Tech-Twenty markets posted double-digit rent growth over the past two years, led by the Bay Area markets – San Francisco (35%), Silicon Valley (21%) and San Francisco Peninsula (19%) – Manhattan (17%) and San Diego (15%).

My take: If you are still in the “searching for an HQ city” phase or looking at opening a satellite office, consider these other Tech-Twenty markets: Salt Lake City, Raleigh-Durham, Portland, or Orange County.

#2 High-tech industry and office using jobs

High-tech was the top industry leasing office space in the U.S., accounting for 20% of major leasing activity thus far in 2014, up from 14% in 2013. The outsized growth within the software/services sector of the high-tech industry has been responsible for one out of every four new office-using jobs creating in the U.S. between 2009 and May 2014.

My take: Woo-hoo for high-tech’s high-impact on economic growth, but be weary of the competitive hiring environment if you’re building a business in this particular sector, especially in these specific Tech-Twenty markets. What’s more, if you don’t require access to tech talent to make your business thrive, you should avoid markets where high-tech has taken over. You’ll be paying their rent prices with no upside.

#3 Media and entertainment retraction

As software/services jobs grew at 5.6% annualized rate through May 2014, by contrast the media an entertainment industry contracted by 3.3% through mid-2014. The decline came from fewer jobs in the motion picture and video production sector, which was partially offset by growth in the advertising sector, a favorite source of monetization for high-tech companies.

My take: Consider this data to be a harbinger (if not a lagging indicator) of an industry’s impending change. When age-old industries retract to make room for new models, entrepreneurs and innovators can slide in and take advantage of these shifting tides.

#4 VC funding in over-drive

Heightened levels of funding – $23 billion already this year, with half of that going to software or media/entertainment – have raised concern regarding the over-valuation of tech companies. Federal Reserve Chair Janet Yellen recently stated that valuation metrics were ‘substantially stretched,’ particularly for the small companies in the social media and bio-tech industries.

My take (and also the take of some of the smartest people I know): We may be facing another bubble, but likely not the epic proportions of the dotcom era. However, this is important to note particularly if you are a company that will likely require funding over the next 12 to 18 months, you should be careful not to get locked into things that will overstretch you in the near-term.

For example…a five-year office space lease.

Who knew so many lessons could be culled from data around emerging office market trends! It’s a good reminder, as we set forth on our journey to change the world one innovative idea at a time, that sometimes it’s the most basic, operational components of a business that can help guide our future decision making.